Danone continued growth acceleration.

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Algemeen advies 18/10/2019 11:42
? Consolidated sales up by +3.7% on a reported basis to €6,418m in third quarter
? Third consecutive quarter of like-for-like sales growth acceleration: +3.0% in Q3
? Very strong growth of Specialized Nutrition offsets Waters softness due to weather comparables in Europe
? 2019 guidance: LFL sales growth narrowed to +2.5% to +3% and recurring operating margin reiterated at above 15%

Emmanuel Faber: Chairman and Chief Executive Officer statement
“Our business continues to demonstrate its resilience by delivering acceleration in revenue growth in Q3. The return to strong growth momentum for Specialized Nutrition in Asia is a highlight, reversing the trend reported last year.
Across Danone, many of our initiatives aimed at quality of growth, product innovation, price-mix enhancement and revenue management discipline are gaining further traction with positive outcomes for our consumers and customers. Mindful of growing geopolitical uncertainties and softness in some markets, we continue to transform
our business at pace so that it is well-positioned to respond to market needs. This keeps on track to deliver sales growth acceleration, steady improvement in recurring operating margin and strong recurring EPS expansion.”

In the third quarter of 2019, consolidated sales stood at €6.4bn, up +3.0% on a like-for-like basis. Value growth continued to be the main growth driver at +4.6%, positive in all reporting lines with all price, product mix and country
mix contributing positively. Volumes declined by -1.6%, impacted by lower demand in Waters Europe and EDP Russia. Reported sales were up +3.7%, including +0.4% from the organic contribution of Argentina to growth, a negative scope effect (-1.3%), primarily linked to the deconsolidation from April 1st of Earthbound Farm. Currencies had a positive impact, +1.6%, mainly driven by the appreciation of the US dollar.

Essential Dairy & Plant-based (EDP) posted in the third quarter net sales up +0.7% on a like-for-like basis, including a +3.4% increase in value, and a -2.7% decline in volumes. North America and CIS are facing challenging consumer environments, while momentum outside of these regions continues to be positive. Plant-based delivered consistent strong growth, including a double-digit growth of Alpro.
Europe delivered in Q3 another quarter of slightly positive growth, as Danone continues to make progress in the transformation of its dairy business to move its portfolio towards new generations, and in the execution of its plans to expand plant-based business in the region. North America reported flat sales in Q3 with a mixed performance between segments: Coffee Creamers and Plant-based (excluding Vega) posted solid growth while Yogurts held market share in a declining category and Premium Dairy reported declining sales despite the good performance of the core business under Horizon brand, given further discontinuation of some non-core business. In CIS, sales were down low single-digit as in Russia premium functional yogurts are impacted by a consumer trade-down. Latam posted moderate growth driven by Mexico and in Aspame, Morocco delivered double-digit sales growth.

Specialized Nutrition sales growth was very strong in the third quarter, up +9.8% on a like-for-like basis, with an increase in value of +9.0% reflecting a positive mix both from a country and a product perspective resulting from value-enhancing innovations and volumes up +0.8%.
Medical Nutrition delivered another good quarter, with sales up mid-single digit, led by double-digit growth in China and solid growth in Europe.
Early Life Nutrition sales grew more than 10% this quarter. Sales in China were up more than 20% and sequentially increased in absolute terms, reaching the highest ever quarter in net sales. This was driven by an increased presence in physical stores in lower tier cities, very strong growth in e-commerce, and innovations roll-out. Direct channels grew faster than indirect channels, accounting for around 75% of total sales in China in the quarter. Outside of China, sales growth was solid, with rest of Asia posting strong results including market share gains in South-East Asia and further geographical expansion, Americas growing strongly and Europe improving driven in particular by the UK, on a low base.

Waters sales were down -0.9% on a like-for-like basis, with a -2.5% decline in volumes and a +1.6% increase in value.
In Europe, against an exceptional base of comparison, sales were down low-single digit, particularly in August, as temperatures were significantly lower than Q3 2018, while market shares remained overall stable in the region. In
Asia, Indonesia and Turkey posted strong growth, while Mizone sales declined in China. Latin America delivered a strong quarter, with all countries growing.

Macroeconomic outlook
In an environment of growing geopolitical uncertainties since the beginning of the year, Danone remains vigilant.
In 2019, Danone expects further cost inflation with a mid-to-high single digit inflation in the costs of raw and packaging materials, including:
· milk price inflation high-single digit overall, on the back of a rebalancing supply and demand dynamic,
· continued inflation in PET cost driven by sustained market demand,
· inflationary conditions in other raw materials, including sugar and fruits.
2019 guidance
In 2019, Danone will continue to progress towards its 2020 objectives by strengthening its operating model through its priorities: accelerate growth, maximize efficiencies and allocate capital with discipline. Delivery of its agenda of sales growth acceleration and improved recurring operating margin will be supported by valorized innovations, active portfolio management, and further savings from the Protein efficiency program and WhiteWave integration synergies.
After a +2.1% like-for-like sales growth over the nine first months of the year, Danone is targeting for the full-year like-for-like sales growth between +2.5% and +3% (vs. around 3% previously) and recurring operating margin above 15% (unchanged).

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